Audit partner independence and business affiliation

evidence from Taiwan

Yu Shan Chang, Chia-Yu Chiang, Li Lin (Sunny) Liu, Xinmei (Lucy) Xie

Research output: Contribution to journalArticle

Abstract

Affiliated business groups play important roles in markets, especially emerging markets. Both International Auditing and Assurance Standards Board (IAASB) and Public Company Accounting Oversight Board (PCAOB) have expressed strong concerns about the audit quality of group financial statements. Audit quality is closely related with auditor independence (Tepalagul & Lin, 2015). In this study, we examine whether audit partners are more likely to compromise their independence for clients affiliated with consolidated business groups. We incorporate the impact of business group in the construction of client importance proxy in order to explore the potential impact of clientele's business group affiliation. Our findings support that there is no evidence on Big N audit partners compromising their independence for economically important clients no matter whether the clients are affiliated or not. However, we find that the previously documented relation between client importance and audit partner independence in non-Big N audit partners rests with business-group-affiliated and unlisted clients. Therefore, we conclude that non-Big N audit partners tend to compromise their independence for economically important clients who are within affiliated business groups and not listed in stock exchanges.

Original languageEnglish
Article number100428
JournalAdvances in Accounting
DOIs
Publication statusPublished - 2019 Jan 1

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Taiwan
Audit
Business groups
Compromise
Audit quality
Auditor independence
Assurance
Oversight
Financial statements
Clientele
Emerging markets
Stock exchange
Auditing

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance

Cite this

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abstract = "Affiliated business groups play important roles in markets, especially emerging markets. Both International Auditing and Assurance Standards Board (IAASB) and Public Company Accounting Oversight Board (PCAOB) have expressed strong concerns about the audit quality of group financial statements. Audit quality is closely related with auditor independence (Tepalagul & Lin, 2015). In this study, we examine whether audit partners are more likely to compromise their independence for clients affiliated with consolidated business groups. We incorporate the impact of business group in the construction of client importance proxy in order to explore the potential impact of clientele's business group affiliation. Our findings support that there is no evidence on Big N audit partners compromising their independence for economically important clients no matter whether the clients are affiliated or not. However, we find that the previously documented relation between client importance and audit partner independence in non-Big N audit partners rests with business-group-affiliated and unlisted clients. Therefore, we conclude that non-Big N audit partners tend to compromise their independence for economically important clients who are within affiliated business groups and not listed in stock exchanges.",
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Audit partner independence and business affiliation : evidence from Taiwan. / Chang, Yu Shan; Chiang, Chia-Yu; Liu, Li Lin (Sunny); Xie, Xinmei (Lucy).

In: Advances in Accounting, 01.01.2019.

Research output: Contribution to journalArticle

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